PSU share buy-back plan may run into rough weather

The Finance Ministry may find it tough to get other ministries to agree on mobilising additional money through buyback of shares or crossholding acquisitions by public sector companies. The Ministry is in the process of moving a Cabinet note in this regard.

The Finance Ministry hopes to bridge the gap created by the shortfall in the disinvestment programme through the move. The target is to raise Rs 40,000 crore by offloading some of the Government's stake in various companies.

However, with disinvestment on the backburner this year for a number of reasons, it has so far managed to raise Rs 1,144.55 crore.

Business Line spoke to various ministries and some government-owned companies to get their views in this regard. Ministries such as mines and coal have strong reservations on the proposal. On the other hand, companies such as SAIL and ONGC are willing to go for buyback but not for crossholding acquisitions.

Investment plans

A source in the know said that companies such as Nalco and Hindustan Copper (under the Ministry of Mines) are not in a position to go for buyback of their shares.

Both these companies have lined up investment plans and any diversion will hurt their prospects, he added.

Buyback of equity will force the companies to deplete their cash reserves and surpluses.

Under the existing regulations, a company will have to make provisions to buy back not just for one particular stakeholder but for all. Second, it will have to extinguish all the shares bought back within a time frame.

Another person familiar with the development said, “SAIL feels that buying back at the current market price would be a reasonable decision as it would boost investor confidence.” However, the company would prefer to have a provision for selling back the acquired shares in the market at an appropriate time, he added.

Such a condition can be fulfilled in two ways — either by allowing SAIL to preserve the acquired shares as treasury stocks, or going in for an additional equity issue at a later date. In the first option, the SEBI Act needs to be amended, while the second can be exercised through a board resolution.

It is estimated that government-owned companies are sitting on cash reserves of around Rs 1,80,000 crore.

The Government has never used the option of buyback, though it did use crossholding acquisition in 1998-99 when ONGC and IOC purchased each other's shares.

At the same time, both these companies also bought under-5 per cent stake in GAIL. The Government got Rs 5,000 crore through that move.

>Shishir.s@thehindu.co.in